Commodity Roundup: Oil sheds over 2%, gold down 1% as Mideast tensions ease

Crude oil prices fell more than 2% on Monday as Middle East tensions eased, after Israel and Iran played down the risk of an escalation following Israel’s apparent strike last week.

Brent futures (CO1:COM) fell 0.58% to $86.58 a barrel by 5:28 am ET, while the U.S. West Texas Intermediate crude contract (CL1:COM) dropped $1.86% to $81.60 a barrel. Both contracts registered a third-consecutive weekly loss.

Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), produces about 3 million barrels of oil per day (bpd), or around 3% of total world output.

Meanwhile, on the demand side, fears that the U.S. Federal Reserve will keep interest rates higher for longer weighed on the outlook.

However, UBS targets a rise in Brent crude oil prices to $91/bbl by mid-year, arguing that, despite elevated tensions in the Middle East, oil prices have reacted only modestly.

The investment bank says geopolitical risk premiums have tended not to last in the past if there are no actual supply disruptions. “We continue to assign a low probability to a closure of the Strait of Hormuz as Iran needs it as well to export its crude oil barrels. Attacks on tankers, pipelines, and other critical energy infrastructure in the region remain possible,” Giovanni Staunovo, Strategist at UBS said.

Additionally, the energy sector will be in focus, with companies like Exxon Mobil (XOM), Chevron (CVX), Valero Energy (VLO), and Phillips 66 (PSX) releasing their earnings reports this week.

Oil ETFs: (USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

Gold prices (XAUUSD:CUR) on the other than retreated as well, with market focus shifting to fundamentals, with investors and traders awaiting a key U.S. inflation reading due later this week for interest rate cues. No Fedspeak will be forthcoming, as the central bank enters the blackout period before next week’s policy decision. Spot prices rose as high as $2,417 in the previous session, not far from the record high of $2,431.

The U.S. and UK have announced that the London Metal Exchange and Comex can no longer accept any Russian copper, nickel and aluminium. However, analysts at ANZ expect the sanctions to “only temporarily disrupt supply. Spot prices should find support as traders scramble for any available metals. Moreover, premiums in certain regions (such as Europe) are likely to rise as the pool of non-sanction metal shrinks rapidly.”

Recent Commodity Price Movements and A look At Some ETFs